He is the man who took on the Hollywood system and won, but could not defeat the elements; the Python whose animations inspired a generation of British cartoonists, and the film-maker who refuses to let the death of his leading man ruin what he hopes will be his most successful movie to date. Terry Gilliam, director, animator, actor and Oscar nominee, was last night lavished with a tribute in London by the Academy of Motion Picture Arts and Sciences.

Two of Gilliam's old Monty Python cohorts, Terry Jones and Michael Palin, were on hand to trip down memory lane. Gilliam himself took to the stage to reveal plans for his long-delayed film version of the story of Don Quixote - the feature he was forced to abandon in 1999 after a freak storm destroyed his set.

For good measure, he also discussed his new movie, The Imaginarium of Doctor Parnassus, which was similarly thrown into chaos following the untimely death of Heath Ledger. Gilliam told the audience that the picture will be credited simply to "Heath Ledger and friends" in tribute to the late Australian actor, who died from an accidental overdose of prescription drugs in January. Johnny Depp, Colin Farrell and Jude Law stepped in to take over from Ledger, slashing their usual fees in order to help Gilliam finish the movie.

"With Heath's death this became a very different film," Gilliam admitted. "In a strange way, events wrote it for us. Fortunately in the movie there is a magic mirror, and when someone goes through it things can change. So we decided that one of the things that can change is the actor playing the main character.

"I was terrified that it wouldn't work but we've had a couple of screenings and it seems to work fine. I'm really pleased with the film - I think it's a good one and I think there will be an audience for it as well," he added.

Gilliam also said that he would be restarting work on The Man Who Killed Don Quixote next year. He explained that he had finally secured the film's rights from the French insurance company which paid out $15m (£9.9m) when the production was scuppered by a flash flood and the withdrawal of lead actor Jean Rochefort. He said he and his co-writer Tony Grisoni had extensively rewritten the original script.

The director, who was born in the US but gained British citizenship in 1968, then took time out to nail his reputation as a loose cannon, a film-maker reputed to run wildly over budget.

"The strange thing is that the reputation is for profligacy but it's not true," he insisted. "We've only gone over budget on one film. I think it has something to do with Brazil, because we took on the studio and won." This was taken as a reference to his infamous 1985 battle with Universal's Sidney Sheinberg over Brazil, which led to the film-maker putting an ad in trade bible Variety calling on the executive to release his movie.

"Hollywood is overseen by executives who are untalented people, and we have a small amount of talent and they are terrified of us," Gilliam added. "They are there to say 'no', because they know that as soon as they say 'yes' the whole thing is out of their hands. It's not that they're bad people. They just have bad jobs."

But he admitted that at times God had stepped in to "save his ass", specifically on Don Quixote.

"I was in some way relieved that it did fall apart," he said. "Because I didn't have the money to finish it. It's a good thing it went down when it did because I would have got the blame for going over budget. I think this time we will make a better film."

Elsewhere, Michael Palin paid tribute to a colleague he described as "a man who begins where others stop and only stops when others have fallen asleep". He added: "Terry is someone who tries to do things in ways they have never been done before. This can be demanding - but usually for no one as much as himself."

· This article was amended on Monday November 24 2008. Colin Farrell, not Colin Firth, was one of the actors that stepped in to take over from Ledger, slashing their usual fees in order to help Gilliam finish the movie. This has been corrected.